The broad-based market index nearly breaks its March 2000 high, but stocks end the day basically flat. Alltel will go private for $27.5 billion. Amazon jumps more than 7.5% on an upgrade. China buys into U.S. private-equity firm Blackstone.
For several hours this afternoon, the Standard & Poor's 500 Index was sitting above its all-time closing high this afternoon, a profound signal of the U.S. stock market's recovery from the effects of the dot-com bust and the effects of the Sept. 11, 2001, terror attacks.
The index moved past 1,527.46, a record that had stood since March 24, 2000, shortly after noon ET. It peaked at 1,529.87 just before At 3 p.m. and then slipped back to 1524.79, less than three points under the high.
The Dow Jones industrials, meanwhile, finished down nearly 14 points to 13,543. The Dow crossed its 2000 high last October.
The Nasdaq Composite Index was up more than 20 points, 0.9%, to nearly 2,579. It is still down 49% from its all-time closing high of 5,048.62, set on March 10, 2000. The index was helped by online retainer Amazon.com (AMZN, news, msgs), which jumped more than 7% to $68.30 on an analyst upgrade.
Today’s gains came as several big deals were announced, a continuation of a wave of mammoth acquisitions and leveraged buyouts.
The biggest deal today was Alltel's (AT, news, msgs) agreement to be bought by private-equity firm TPG, formerly Texas Pacific Group, and GS Capital Partners, a division of Goldman Sachs Group (GS, news, msgs), for $27.5 billion.
Also announced was General Electric's (GE, news, msgs) agreement to sell its plastics business to Saudi Arabia's largest industrial company, Saudi Basic Industries Corp., in a transaction valued at $11.6 billion. GE was up 0.4% to $37.10.
Why the S&P 500's breakthrough counts
It shouldn't be a surprise that the S&P 500 topped its old high and then slipped back. That's a frequent occurance because some investors have sold after an index passed a major threshold like the 2000 record for the S&P 500.
That should not diminish what has happened.
What makes the S&P 500’s breakthrough important is scope. The Dow, of course, is just 30 stocks. The S&P 500 is 500 stocks. And not just any 500 stocks. The index contains a big broad brush of American business. It includes all of the Dow 30 stocks, most of the stocks in the Dow Jones Transportation Index ($TRAN) and most of the stocks in the Dow Jones Utilities Index ($UTIL).
It represents 75% of U.S. market capitalization. And it's a diverse group, from oil companies ExxonMobil (XOM, news, msgs) and ConocoPhillips (COP, news, msgs), to retailers Federated Department Stores (FD, news, msgs), to medical equipment maker Stryker (SYK, news, msgs), and Clorox (CLX, news, msgs), which makes everything from cleaning supplies and bleaches to K.C. Masterpiece barbecue sauce.
Like the Dow, the S&P has recovered in part because the world is awash in cash, mergers and rumors of mergers.
So, why did the S&P 500 take so long to beat its 2000 record? The short answer is two of the index's 10 sectors: technology and telecommunications, The technology sector is still more than 60% below its level on March 24, 2000. The telecom sector is more than 44% below its March 2000 level.
But that's only part of the story. New stars have emerged in the past seven years, especially energy -- oil, oil services, natural gas and the like -- and materials, including copper, steel, aluminum and chemicals.
All were essentially written off at the height of the dot-com frenzy. They have led the S&P 500’s resurgence as investors grew to appreciate the enormous demand for commodities and energy from China, India and other emerging markets.
And, in the case of energy stocks, they got an additional boost from the Iraq war and civil unrest in places like Nigeria. The result has been a flood of speculative money into crude oil. That, in turn, set off enormous interest in companies that can find more oil and gas.
In March 2000, technology stocks represented 30% of the S&P. Today, it's closer to 15%. Microsoft (MSFT, news, msgs) is still down 48% from its peak in December 1999. Cisco Systems (CSCO, news, msgs) is down 65% from its peak in 2000. And Intel (INTC, news, msgs) is down nearly 70% from August 2000.
Telecom stocks were 7.5% of the index; today, they're worth about 4% -- even if AT&T (T, news, msgs), cobbled together from a number of the companies split up from the original AT&T in the early 1980s, now has the fifth-largest market cap of any stock.
Meanwhile, the energy sector is up 147% from March 2000 and 204% from the market bottom in October 2002. It represents 10% of the S&P 500, compared with 5% in 2000. The materials sector is up 82.5% and 142% from the market bottom.
XTO Energy (XTO, news, msgs) is up 2,400% since the March 2000 S&P top; Chesapeake Energy has risen more than 1,200% since March 2000. ExxonMobil (XOM, news, msgs) is up more than 110%. ConocoPhillips is up more than 220%.
Steel maker Nucor (NUE, news, msgs) is up 420% since March 2000. Allegheny Technologies (ATI, news, msgs) has soared more than 520%. U.S. Steel is up nearly 400%.
It is not fair, however, to say the S&P 500's rebound is all energy and commodities. Financial stocks are up 50% from the 2000 top and 103% from their bottom in October 2002. Industrials are 27% ahead of March 2000 and 106% ahead of the 2002 lows.
The most amazing sector may be utilities, which benefited from the Federal Reserve's strategy to jump-start a reeling economy in 2001 by cutting its key interest rate to 1%. Utility stocks are up 46% from 2000 and more than 180% from the 2002 bottom.